Glossary

You do not need to do the math — but an owner who can name the machinery gets much better answers from their advisors. These are the 28 terms the book uses, defined the way the book defines them.

AAIIAdjusted Aggregate Investment Income

Most passive investment income earned across the corporate group in a year. Above $50,000, each extra dollar removes $5 of the small-business deduction limit.

ACBAdjusted Cost Basis

The tax cost of a property or policy. For life insurance, the death benefit minus the ACB is what credits the CDA — and the ACB decays toward zero near life expectancy.

AMTAlternative Minimum Tax

A parallel tax calculation that can apply in low-regular-tax years (such as an LCGE sale year). Generally recoverable against regular tax within seven years.

CCPCCanadian-Controlled Private Corporation

The corporate status everything in the book depends on: the small-business rate, the SBD, and access to the LCGE all require it.

CDACapital Dividend Account

A notional account tracking tax-free surpluses (the untaxed half of capital gains, life-insurance proceeds above ACB). Balances can be paid to shareholders completely tax-free via a T2054 election.

COLICorporately-Owned Life Insurance

Permanent life insurance owned and paid for by the corporation. Exempt growth avoids AAII; the death benefit less ACB credits the CDA.

Estate Freeze

A reorganization that locks today’s value (and today’s tax bill) to the founder’s fixed-value shares, passing future growth to family or a trust.

GRIPGeneral Rate Income Pool

A CCPC’s pool of income taxed at the general corporate rate, from which eligible dividends (taxed at lower personal rates) can be paid.

HoldcoHolding Corporation

A corporation that holds investments or shares of an operating company — the vault behind the storefront in the two-corporation architecture.

Hypothecation Agreement

The pledge of an asset (such as a life-insurance policy) as loan collateral without giving up ownership — the paperwork at the heart of IFA and IRP.

IFAImmediate Financing Arrangement

Borrowing against a permanent policy’s cash value right after funding it, redeploying the capital in the business. Interest deductibility rides on paragraph 20(1)(c) — documentation is everything.

IPPIndividual Pension Plan

A defined-benefit pension for one person, sponsored by the corporation. From about age 40, deductible room exceeds the RRSP limit and widens each year. T4 salary — not dividends — creates the room.

IRPInsured Retirement Plan

Using a policy’s cash value as collateral for retirement-income loans. Judge it on True Net Cost, never on the tax-free label.

LCGELifetime Capital Gains Exemption

$1,275,000 (2026) of capital gains per shareholder sheltered on the sale of qualifying small-business shares. Qualification must be maintained — see purification.

MTRMarginal Tax Rate

The tax rate on your next dollar of income. Ontario’s top combined rate is about 53.53% above roughly $258,000.

NCPINet Cost of Pure Insurance

The actuarial cost of insurance protection each year, which reduces a policy’s ACB over time — accelerating the CDA credit at death.

OASOld Age Security

The government pension payable from 65, deferrable to 70 for +36%. Subject to a recovery tax (clawback) above an income threshold — tested on grossed-up income.

OpcoOperating Corporation

The corporation running the active business — the storefront in front of the Holdco vault.

PICPaid-Up Capital

The tax-recognized capital contributed for shares, extractable tax-free. Central to s.84.1’s anti-surplus-stripping rules on family sales.

RCARetirement Compensation Arrangement

A supplemental retirement plan (Part XI.3): half of each contribution is invested, half sits in a refundable tax account with CRA earning nothing, refunded $1 per $2 paid out.

RDTOHRefundable Dividend Tax On Hand

Refundable tax a corporation prepays on investment income (tracked as ERDTOH/NERDTOH), returned at $38.33 per $100 of taxable dividends paid to shareholders.

ROPReturn of Premium

A rider refunding premiums if no claim occurs — on SDCI critical-illness policies, often at year 15 or age 65.

RTARefundable Tax Account

The CRA-held half of every RCA contribution. It earns no interest — the structural drag every RCA analysis must price in.

SBDSmall Business Deduction

The deduction giving CCPCs the ~11.2% Ontario rate on the first $500,000 of active income. Ground down by passive income (AAII) and large taxable capital (TCEC).

SDCISplit-Dollar Critical Illness

A shared-ownership critical-illness arrangement: the corporation and shareholder each pay for and own distinct rights under one policy, with documentation splitting premiums.

TCECTaxable Capital Employed in Canada

The capital measure that grinds the SBD between $10 million and $50 million — the big-balance-sheet counterpart to the AAII grind.

TOSITax On Split Income

Rules taxing dividends to family members at the top rate unless an exception applies — the ~20-hours-per-week excluded business, the 10% votes-and-value excluded shares (generally unavailable to professional corps), or the age-65 spousal exception.

True Net CostTrue Net Cost (IRP)

The honest price of an insured retirement plan: interest plus guarantee fees plus corporate tax on those fees plus loan repayment plus the ACB effect on the CDA — compared against simply paying tax on withdrawals.